High levels of borrower restrictions, restrictive loan covenants and independent oversight.
By imposing higher levels of restrictions on borrowers, mortgage Secured Loan Note holders can significantly control and reduce their levels of investment risk. Loan covenants require the borrower to fulfil certain conditions or restricts the borrower from undertaking certain actions, which could affect the performance of the loan.
At RentFlow, our investors are secured parties. City Trust Trustees (Ireland) Limited has agreed to take and hold the security as security trustee for the secured parties. City Trust, who are authorised by the Department of Justice in Ireland, represent the community of loan note holders and ensure that the necessary security documents are in place.
City Trust will have co signature on all banking transactions related to the restricted bank account where Loan Note holders are paid from. City Trust will report at least annually to the loan note holders and are obliged to notify them if any covenant breaches are notified to them.
LK Shields, a leading Irish corporate and commercial law firm, prepared all the loan contract and security documentation, trust deeds etc to a very high level and in accordance with Irish law.
SECURITY
Security
SECURITY
First charge registration of loans
First charge registration of loans
Each Lenders Secured Loan Note is registered as a mortgage against the property on the land registry and also registered as a first mortgage charge against the borrower (property company) in the CRO. All Secured Debt Lenders are collectively registered on both of these registrars through the security trustee. This means the borrower is restricted to sell, refinance or transfer the property ownership until all RentFlow Secured Debt Lenders are repaid.
Propco shall not complete the sale of all or any part of the property without the Secured Loan Note being repaid in full or replacement with security of an acceptable value to the Noteholders (acting by a Noteholder Majority). RentFlow borrowers are also restricted from transferring a secured loan to another property or company or any other security.
Propco will not provide or permit to subsist any security over their assets in favour of any party other than the noteholders. In particular, they shall not create or permit to subsist, or agree to create, any charge, pledge, lien or other security interest over or dispose of any of the assets of the company or Propco. This means all other debts in the company are junior ranked to RentFlow Secured Debt loans. What’s more, RentFlow Secured Loan Note holders are secured as 1st ranking priority creditors in the capital stack. RentFlow Secured Debt Lenders are also always ‘first in line creditors’ to be paid back on exit.
At no stage during the Secured Loan Note period will investor funds be left unsecured. Secured Debt Lenders funds will only be released from solicitors’ secured client accounts once the solicitor is satisfied that the full security for each loan is in place.
Blocked bank accounts with restrictions
RentFlow Secured Debt Lenders funds are only lodged in bank accounts under joint control of RentFlow and City Trust. This means that RentFlow cannot withdraw any funds from this ring-fenced investor loan account without the signed co-approval from the security trustee.
Loan coverage
RentFlow offers Secured Debt Lenders an initial minimum of 115% security coverage. So, in any default, there is sufficient protection for the return of all their capital. Most lenders require a debt coverage ratio (DCR) of between 1.25 – 1.35. This means the property must generate rental cash flow of between 25% – 35% more than its rental operating expenses to ensure cash flow sufficient to cover loan payments is available on an ongoing basis. RentFlow loans provide greater security to Secured Debt Lenders, as we require a minimum DCR of 1.5 with each investment. This means that each property RentFlow lends against, must generate a rental cash flow of 50% more than its rental operating expenses. This ensures a higher than normal cash flow sufficient to cover loan payments is available on an ongoing basis.
SECURITY
RENTFLOW Series 1 - Dublin 7 Portfolio
Property value: €7,100,000
Annual rent flow: €488,000
Secured RentFlow loan amount: €6,200,000
Loan Coverage & Piority Ranking
Independent Market Value
€7,100,000
Rentflow
€6,200,000 Mortgage Loan Note First Ranked Senior Debt Highest priority/Lower risk
Borrower
€900,000 Equity
Ranked second
Lowest priority/Highest risk
Note: The capital stack is one of the most important concepts for Secured Debt Lenders interested in evaluating real estate risk and projected rate of return. Understanding where the Secured Debt Lenders sits in the capital stack helps assess the level of risk they are exposed to at the hands of other participants in the stack. RentFlow Secured Debt Lenders sit in the highest priority in the capital stack with the lowest risk.
SECURITY
Debt Service Coverage
Debt Service
Coverage Ratio
=
€490,000 (Yearly NOI)
€310,000 (Yearly Debt Service)
The Debt Service Coverage Ratio = 1.58%
Note: Most lenders require a debt coverage ratio (DCR) of between 1.25 – 1.35. This means the property must generate rental cash flow of between 25% – 35% more than it's rental operating expenses to ensure cash flow sufficient to cover loan payments is available on an ongoing basis.
SECURITY
Level 1. Security Quality
High levels of borrower restrictions, restrictive loan covenants and independent oversight.
A bank would only lend against “hard” assets and RentFlow does the same. There must be:
-
1st charge over assets
-
Clear and undisputed ownership
-
Independently quantifiable and stable value today
-
An ability to easily take over
-
An ability to easily realise value
Specific focus is always put on the quality of the security today, not in 12 months or 12 years. That future security might never materialise, thereby exposing you to potentially 100% if in default. RentFlow provides Secured Debt Lenders the highest-ranking first charge over the ‘hard’ assets, meaning you are repaid your capital ahead of all other parties.
SECURITY
Level 2. Security Level
A bank would never lend against the full value of an asset, so why would you? Once you have high-quality security, then you can look at the level of security, which should always be over 110% of the total investment.
This is because if the investment doesn’t go as planned, RentFlow Secured Debt Lenders can get all their money back if resold at the investment value, allowing for resale/liquidation costs. In fact, RentFlow offers Secured Debt Lenders a minimum of 115% security coverage, meaning that in the event of any default, there is sufficient protection for the return of all your capital.
SECURITY
Level 3. Security Oversight & Management
A bank would insist that their capital is always protected by ensuring that their security cannot be reduced during the investment period. RentFlow offers this same ongoing capital protection during the term.
Oversight of the securities is always managed by an external and independent third party. We have appointed City Trust Trustees (Ireland) Limited to act as our Independent Security Trustee. Its role is to act on behalf of each Secured Debt Lenders. CityTrust is committed to:
-
Verifying the existence of the security and appropriate documentation
-
Providing annual updates to Secured Debt Lenders
City Trust are authorised by the Irish Department of Justice as a Trust & Company Service Provider (TCSP). For more information, visit citytrust.ie
